Market Insight

Gloomy Australian TV advertising outlook to drive original sponsored content

February 23, 2017  | Subscribers Only

Kia Ling Teoh Kia Ling Teoh Senior Research Analyst – Advertising & Television Media, IHS Markit

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Australian commercial free-to-air (FTA) broadcaster Seven Network posted a 5.4% year-on-year increase in total revenue to A$699 million ($536 million) in 1H 2017 ended 24 December 2016. Seven Network attributes the growth to an improvement in audience ratings and the halo effect of multiplatform TV, including its Video-on-Demand (VoD) and catch-up TV service PLUS7.

Our analysis

The Rio 2016 Summer Olympic Games did not lift Seven’s advertising revenue as much as it expected in 1H 2017 due to the softening TV advertising market. International quadrennial broadcast conventionally fetches higher advertising returns thanks to the high audience ratings; however, the Seven Network’s total advertising revenue grew a modest 3.0% in 1H 2017 compared with the corresponding period a year earlier. Seven Network is one of the biggest sports rights spenders in Australia; it reportedly paid A$170 million ($130 million) for the rights of the summer and winter Olympics Games until 2020, A$900 million ($690 million) for four seasons of the Australian Football League (AFL) and A$150 million ($115 million) for five seasons of the Australian Tennis Open.

 

IHS Markit estimate Seven Network’s dependency on advertising income declined from 88.1% in 1H 2015 to 82.9% in 1H 2017, while program sales, affiliates fees and other income gained. Affiliate fees and program sales income grew 18.8% in 1H 2017 on the same period last year, accounting for nearly 20.0% of the total revenue.

Rival commercial FTA broadcaster Nine Network reported a 5.3% fall in broadcasting revenue in 1H 2017. Australia’s other major commercial FTA broadcaster Network TEN is yet to announce its financial results but has reported a lower earnings forecast, blaming a weak advertising market and an increase in content expenses. IHS Markit analysis of the Australian TV advertising market indicates revenue declined 3.8% in 2016 whilst we forecast a slowdown in the decline to 1.7% in 2017.

The gloomy TV advertising outlook will drive content production in Australia. IHS Markit expect Seven Network to invest more on original production and sponsorship. The broadcaster plans to double locally-made content, especially original dating programmes which have proven popular by Nine’s Married at First Sight and Ten’s The Bachelor. In January 2017, Nine Network took the unprecedented step to integrate sponsorships into the fourth season of its original flagship dating show Married at First Sight, partnering with brands HotelsCombined, KFC, Suzuki and Lottoland. This will start a trend of sponsored programming in Australia, which is common in markets like China. Chinese smartphone maker Oppo paid RMB400 million ($58 million) for a sponsorship on celebrity reality show Up Idol (偶像来了) in 2014 and then increased its investment by 25.0% to RMB500 million ($73 million) for the second season in 2016.

Research by Market
Media & Advertising
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